CERAWeek: Company, industry have transformed since Macondo, BP CEO says

This week marked the 5-year anniversary of the Deepwater Horizon explosion in the deepwater Gulf of Mexico that took 11 lives and resulted in the costliest oil spill in US history, a somber occasion that Bob Dudley, BP PLC chief executive officer since the aftermath of the incident, took a moment to remember during an Apr. 21 IHS CERAWeek luncheon.

Dudley emphasized the company’s commitment to gulf recovery, reaffirming that it has spent about $44 billion in response, of which $14 billion has gone toward cleanup, another $14 billion toward compensating victims, and $1 billion toward restoration projects (OGJ Online, Feb. 3, 2015).

The company also has paid hefty fines, and could be penalized an additional $13.7 billion after the US District Court for the Eastern District of Louisiana ruled in January that 3.19 million bbl of oil were discharged into the gulf following the explosion (OGJ Online, Jan. 16, 2015).

Dudley has overseen a dramatic transformation within the company since 2010 that’s included consolidation of its global drilling team, strengthening its training program with a more practical approach, launching its Houston monitoring center to track well behavior and blowout preventers in real time in the gulf, and divesting $40 billion in assets to promote efficiency, he said.

He explained that the latter change has enabled BP to weather the storm created by depressed crude oil prices. “People got used to $100[/bbl] oil,” Dudley said, adding that he sees prices staying “lower for longer.” But he doesn’t seem worried.

“The oil and gas industry made the same returns at $10/bbl as it did at $100/bbl,” he stated. Dudley also isn’t tempted to take part in a megamerger resembling that of Royal Dutch Shell PLC-BG Group PLC (OGJ Online, Apr. 8, 2015); or Halliburton Co.-Baker Hughes Inc. (OGJ Online, Nov. 17, 2014). Analysts have suggested a bid on BP by ExxonMobil Corp. would be opportunistic for the supermajor.

“I don’t see forces at work for lots of consolidation unless [oil] prices stay down for a long time,” he said. Notably, Exxon Corp. and Mobil Corp. merged in an $82-billion deal during the industry downturn of the late ‘90s. Dudley, the British oil giant’s first chief executive from the US, said BP’s Lower 48 Group and its 7 billion bbl in resources, spun off last year, are simply too big to divest (OGJ Online, Mar. 4, 2014).

Dudley said the current downturn is more reminiscent of the mid-'80s because of the worldwide production surge, and he thinks it “won’t take long” for Iran to add another 500,000 b/d to the mix should sanctions on its oil be lifted.

Global operations

Sanctions in Russia primarily impacting Arctic and unconventional operations, meanwhile, may not discourage possible additional investment in the country by BP, which owns 20% of oil giant OAO Rosneft.

In Alaska, the presence 26 tcf of natural gas in Prudhoe Bay makes LNG a reality for BP. “Alaskan gas looks like it can be economic,” with Asia serving as a primary export destination, he said. The Alaska LNG project—a partnership among BP, ExxonMobil, ConocoPhillips, and TransCanada Corp.—submitted in February a series of draft environmental and socioeconomic reports to the US Federal Energy Regulatory Commission (OGJ Online, Feb. 12, 2015).

BP is still the largest acreage-holder in the gulf, where “cost structures have to come down in the deepwater,” he stated. Higher costs are why the company teamed up with Chevron Corp. and ConocoPhillips to explore and appraise 24 jointly held offshore leases in the northwest portion of Keathley Canyon (OGJ Online, Jan. 28, 2015).

Costs are even higher in the North Sea, where the company has $10 billion in projects and is going through a “painful adjustment” as fields are ageing and the UK tax regime has traditionally been unfriendly to producers.

In a subsequent discussion, Eldar Saetre, Statoil ASA’s newly appointed chief executive officer, said the cost of subsea development has multiplied by three, noting that generally cutting costs is easy, but “cutting the right costs is much more difficult.”

He pointed out that Statoil’s massive Johan Sverdrup discovery is near the first license ever awarded on the Norwegian continental shelf, indicating the possibility of future discoveries–aided by an expansive knowledge base built up through the years.

Contact Matt Zborowski at matthewz@ogjonline.com.

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